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Lisa Buonocore EDET 709 Big Redesign

Narration: Welcome to Training Lesson number three in the Basic Flexible Benefits Plan series. This lesson is Positioning Premium Only Plans to the Employee. “Understanding how to position Flexible Benefits (Flex) Plans to an Employee will help you write more business because you will have the knowledge of how a Flex Plan can benefit an employee. Which means to you; that you can explain and answers questions regarding how pre-taxing works. And the real benefit to you is that you are able to help them make the best benefit choices possible.” It is recommended that you have already gone through Lesson Number One in this series – Introduction To Flexible Spending Accounts. If you have not already reviewed that lesson, please return to the menu and select Lesson One. Click the next button to start the training. ___________________________________________________________________________ ___________ Facilitator Notes: Above is the narration text used for the self paced version of the lesson. This is the rough draft of what will eventually be the Facilitator Guide Notes, which is still being put together. This lesson is designed to be used for both CLA of NY training – there are no company specific information. There are also slides listed as (Hidden) which are in the presentation for the self paced version only and will be removed before the final Facilitator version is released. The slide animation is also contained in the Facilitator Notes – please make note of when animation comes into the slide (ie by click of the mouse, with previous, etc.). This will help you to make better use of the slide and get the anticipated impact of the animation.

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Lisa Buonocore EDET 709 Big Redesign

Narration: The purpose of this training is to help you understand how to best position this value added service with an employee. The information in this training is at a high level. For more detailed information please refer to the resources noted throughout the lesson. On the Main Menu screen you can roll your mouse over each topic to get a brief explanation of that section. _____________________________ Facilitator Notes: Review the topics that you will be discussing during this lesson.

“Understanding how to position Flexible Benefits (Flex) Plans to an Employee will help you write more business because you will have the knowledge of how a Flex Plan can benefit an employee. Which means to you; that you can explain and answers questions regarding how pre-taxing works. And the real benefit to you is that you are able to help them make the best benefit choices possible.”

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Lisa Buonocore EDET 709 Big Redesign

Narration: The training objective for the next 20 to 30 minutes is to supply you with the basic concepts of positioning the Premium Only Plan (POP) to an Employee. You will see several examples of ways to illustrate how a Premium Only Plan works and to show the need for pre-taxing to an employee. It is advisable that you become well rehearsed at using these illustrations so that they flow well during a one-on-one employee meeting.

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Lisa Buonocore EDET 709 Big Redesign

Narration: Employees will benefit by participating in their employer’s flexible benefits plan. The following are a few examples of these benefits: •The plan allows employees the ability to tailor a benefits program to their individual needs. •It offers preferential tax treatment, which makes the purchase of employee benefits more affordable. •This plan increases spendable income, or provides the opportunity to purchase additional benefits with the tax savings. Simply put – the employees can save Federal Income, State Income, and FICA taxes, allowing them to purchase additional benefits or keep the tax savings and experience an increase in their take home pay.

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Lisa Buonocore EDET 709 Big Redesign

Narration: Payroll Taxes The addition of a Flexible Benefits Plan to a company’s employee benefits program has the potential to save tax dollars for the employer and the employees. To understand and appreciate the benefit of adding a Flex plan, you must understand the basics of payroll taxes. This illustration shows the payroll taxes that are typically paid by an employee and an employer. •First – let’s look at FICA which is Social Security taxes. FICA is short for the Federal Insurance Contributions Act and is paid at 7.65 percent by both the employee and employer. The employer matches the employee’s FICA payment. •The employee is responsible for paying Federal income tax and State income tax. These of course vary by the employee individual situation and by the state in which they reside. •The employer is responsible for federal and state unemployment tax (FUTA and SUTA). •FUTA is based on the first $7,000 of income. It has a maximum of 6.0 percent or a minimum of 0.6 percent. •SUTA varies by state. ______________________________ Facilitator Notes:

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Lisa Buonocore EDET 709 Big Redesign

Narration: In this simple example, we will use numbers that are easy to remember and that make the math calculations easier. This way you can quickly write this example out when sitting with an employee. The 25% tax amount is, again, used for the ease of the math calculations, the actual tax amount of an employee may differ. If you use this example be sure to explain that it is for explanation purposes only and it is an example of how pre-taxing works – it does not reflect that employee’s actual tax savings. The employee’s taxable income is $1,000. But, because the employer has a Premium Only Plan, the insurance premiums are taken out before taxes are calculated (pre-tax). So, the taxable income is lowered to $900 (vs. $1,000 without a POP). Then, the taxes withheld from $900 are only $225 (vs. $250 without a POP), which leaves $675 as take-home pay (vs. $650 without a POP). Therefore, the take-home pay is increased by $25. In explaining the example to the employee, you start by explaining that you want to show an example of the impact on a paycheck by pre-taxing. Again, make sure that the employee knows that this is just an illustration, not their actual situation. Each pay period the employee makes $1,000. In the scenario without a POP the first thing that is done is the taxes are calculated on the entire $1,000. In this case, using an average tax rate of 25%, that amount comes to $250 - which is the first thing deducted from the $1,000 each pay period. That leaves the employee with $750. Then the insurance premiums of $100 are deducted from the $750 leaving $650 as the employee’s take home pay – or spendable income. Now, in the “with a POP” scenario we still have the same $1000.00 in salary each payroll period, but the first thing that is deducted is the $100 for the insurance premiums. This is done before any taxes are calculated – it is done pre-tax. <ANIMATION – Arrow pointing appears> This leaves $900, which is now the employee’s taxable income. The taxes are calculated as $225, which is deducted from the $900, leaving $675 as the take home pay. This is an increase of $25 in take home pay as compared to the “without POP” scenario. This employee saves $25 each pay period just by pre -taxing their insurance premiums. <ANIMATION – Star with $45.72 appears > This is an annual tax savings of $300. This is a huge win for the employee!

This $1,000 example using a 25% tax rate is an easy way to simply illustrate how pre-taxing works. It is recommended that you learn it so that you can write it out and explain it to an employee quickly and effectively during a one-on-one meeting, if you do not have the brochure example handy. ____________________________________________________________________________________________
Facilitator Notes: This $1,000 example uses very simple numbers so that the math is easy to do and the example is easy to remember. They can also use the Flexible Benefits “brochure” – Form number 65697-5.

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Lisa Buonocore EDET 709 Big Redesign

Narration: What could that employee do with an additional $25 per pay period – or $300 per Welcome! year? There are any number of options – some of the more popular are: •To keep it in their take home pay and view it as a $25 per pay period raise. •To pick up additional core benefits that their employer offers – or increase coverage options on ones they already have. •Set it aside for their Christmas fund – or “fun” money. •But as a sales representative – you would like to see them use it to purchase additional protection for themselves and their family with one of our products. Many of our product coverage option are less than $25 per pay period. Because of this they can pick up additional protection while still taking home slightly more than before. The tax savings that they experience offsets the premium for the coverage! If an employee has an additional $25 per pay period due to pre-taxing, they can easily pick up this Cancer plan for $22.50 and still see an additional $2.50 in their take home pay – so it stays almost the same as it was before they picked up the additional coverage! Now take a few minutes to practice writing out this $1,000 Example of pre-taxing for the employee. _____________________________________________________________________ ______________ Facilitator Notes: Have the class take a few minutes and write out this $1,000 example, you could even divide them up and have them role play it as they explain the example.

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Lisa Buonocore EDET 709 Big Redesign

Narration: Here is a sample script you can use to review the benefits of participating in a Premium Only Plan with an employee. First ask the employee: “Are you familiar with the Section 125 or Flexible Benefits Plan your employer offers or is now offering?” They will, in many cases, say they are not familiar or that they don’t really understand how it works. And even if they are familiar with it, ask if they would like you to review how it works. Remember, you may be the only person who has ever truly sat down with them and explained how the Premium Only Plan can benefit them as an employee. Now review the $1,000 Example: “Basically, a POP or Flex Plan allows you to pretax the premiums you pay for your benefits. So, your benefits come out of your paycheck before your income is taxed. Let me show you an example (The $1000.00 Example). Let’s say you make $1,000 per pay period. By pre -taxing, the insurance premiums of $100 are taken out before taxes are calculated. So, the taxable income is lowered to $900, versus $1,000 if you didn’t pre-tax. The taxes withheld from $900 are only $225, versus $250 without pretaxing. This leaves $675 as take-home pay, versus $650. Your gross income has not changed, but your take home pay has increased by $25. You are able to increase your take-home pay by pre-taxing your benefits. You could use this tax savings of $25 to purchase our products that best fit your needs, increasing your overall benefits coverage.” And you might even want to use a unit of conviction such as: “Adding additional benefits is very affordable when you take advantage of your Flex Plan because the tax savings you realize will offset some, if not all, of the premium for your new benefit(s). Which means to you; that there will not be a major impact on your take home pay, and in some cases it may actually increase, while you and your family receive additional coverage. And the real benefit to you is the peace of mind in knowing that you have provided an additional layer of financial protection for your family.” ________________ Facilitator Notes: Print this script out for each attendee and pass it out so they can use it to practice. When reviewing the script pick an attendee to play the role of the employee. Note the Unit Of Conviction!!

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Lisa Buonocore EDET 709 Big Redesign

Narration: Welcome! Now that you’ve seen the $1,000 Example and the Sample Script, let’s put the two together. If you are in a setting where you can practice, take a few minutes and practice the script using the $1,000 Example. This is what we call Role Playing and it is an important part of learning the different scripts and presentations you’ll need during your career. I’m always reminded of a quote I heard some time ago, “Amateurs practice until they get it right, while professionals practice until they cannot get it wrong!” _____________________________________________________________________ __________________

Facilitator Notes: Have the class take a few minutes and role play the $1,000 example with the script. Print a copy of the script out for each attendee before the class.

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Lisa Buonocore EDET 709 Big Redesign

Narration: All participants in a flexible benefits plan must be “employees” of the employer. It’s important to note that the IRS may not consider some workers “employees.” For example, they may be independent contractors or 1099 employees. However, the stipulations do not prohibit the formation of a flexible benefits plan for the other employees of these businesses. Employers determine their employees’ eligibility requirements for participating in the flexible benefits plan, such as what is considered full-time, and how long employees must have been employed to participate. These requirements must be listed in the employer’s plan document, which is a written document necessary to establish a flexible benefits plan.

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Lisa Buonocore EDET 709 Big Redesign

Narration: Once employees elect to participate in a Flex Plan, they may not make any changes in their elections during the plan year (i.e., adding, canceling, or altering elections) unless: • They experience a status change. AND • The election change requested is consistent with the status change. For health care FSAs, dependent care FSAs, accident and health plans and group term life plans, IRS regulations establish categories of valid status change events. If an event does not fit into one of the categories listed, it does not qualify as a status change. Some examples are: •Change in marital status •Changes in dependent(s) status •A change in employment status from full-time to part-time (or vice versa) by the employee or employee’s spouse •Unpaid leave of absence by the employee or the employee’s spouse •A significant change in health coverage of the employee or spouse attributable to the spouse’s employment, including significant cost or coverage changes by a third -party provider or an addition or elimination of a benefit option

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Lisa Buonocore EDET 709 Big Redesign

Narration: When selling our products, you should tell employees up-front that they may owe taxes on some of the benefits they receive and how their Social Security benefits may be affected. Reductions in employees’ taxable incomes as a result of pre -taxing benefits lowers the amount of FICA withheld from their paychecks and the contributions made to the Social Security programs for retirement, disability, and survivor benefits. Therefore, there may be a reduction in future Social Security benefits. According to the tax laws, if disability premiums are employer-provided or paid with pretax dollars, any disability claim payments received by the employee will be considered income for income tax purposes. Insureds will be subject to federal income taxes the entire time they are receiving taxable total disability payments and in the first six months of a disability, the disability benefits are also subject to FICA taxes. Indemnity benefits. Premiums paid with pretax dollars under a flexible benefits plan are considered to be employer-paid for tax purposes. Therefore, when employees receive claim payments from one of our products that was pre-taxed, the payment may be considered as taxable income. We are required by the IRS to provide a Form 1099 when indemnity payments of $600 or more are made in a year. If total benefits received exceed actual charges, the employee may be responsible for reporting this as excess income.

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Lisa Buonocore EDET 709 Big Redesign

Narration: Our sales representatives may conduct group presentations to inform employees about the benefits and how the changes in the flexible benefits plan affect them. The primary objective here is to tell employees what they need to know to make their enrollment decision. During the group meeting, you might provide a forum for questions generated by communications employees received earlier. After the presentation, distribute the applicable forms and brochures to employees who attended. Conduct individual employee meetings with each employee. Enroll managers and key employees first in order to gain their support of the program. Each employee should attend one of these sessions even if he/she is not interested in the offerings. The IRS requires that all eligible employees have the opportunity to enroll in the program. At these individual meetings, complete the appropriate applications and Election Forms. Give each employee (who elects to participate) an employee folder and review its contents with those employees. Distribute the appropriate Flexible Benefits Plan Taxability of Benefits flier to participants purchasing our products at this time. Facilitator Notes: Form 65697-5 and Form 43248-23

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Lisa Buonocore EDET 709 Big Redesign

Narration: We have many excellent resources and tools when it comes to Flexible Benefits Plans. All of the marketing materials can be ordered and shipped to you – and many can be printed right from ProducerNet. On the screen you see several Internet links that will connect you with many valuable resources and information. Please take the time to review all the information you can about Section 125 and Flexible Benefits Plans. Now let’s see how much you’ve learned with a short quiz!

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Lisa Buonocore EDET 709 Big Redesign

Facilitator Notes: The following three slides are questions that you can ask the class and see if they learned anything!

Question One: Participant elections are irrevocable for the period of coverage (generally the length of the plan year). True False

The correct answer is a – True. Once the plan year begins the benefit elections that the employee is pre-taxing cannot be changed during the plan year except due to a qualified change in status.

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Lisa Buonocore EDET 709 Big Redesign

Question Two: Which of the following is considered a qualified change in status? Birth of a child Divorce Marriage None of the above All of the above The correct answer is e – All of the above. The birth of a child, a divorce, and marriage are all qualified changes in status. An employee can make a change due to any one of these, but the change they make to their deductions must be consistent with the status change.

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Lisa Buonocore EDET 709 Big Redesign

Question Five: Which of the following is not an example of how an employee may benefit from having a POP plan? The employee may increase spendable income. The employee may purchase additional benefits. The employee does not have to pay FICA on qualified premiums. The employee pays a lower premium for coverage. The correct answer is d- The employee pays a lower premium for coverage. Pretaxing has no impact on the premium for qualified insurance coverage. There is no reduction in the premium although the employee may see less than the premium amount difference in take home pay due to the tax savings offset all or a portion of the premium.